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Restructuring / Turnaround Strategies Case Study
Case Title:
GM's Growing Troubles: Rick Wagoner's Restructuring Strategies and the Challenges
Publication Year : 2006
Authors: Thoraya and Chaitanya, Krishna Chaitanya V
Industry: Automobile
Region: USA
Case Code: RTS0081
Teaching Note: Not Available
Structured Assignment: Not Available
Abstract:
General Motors (GM) incurred losses to the tune of $1.6 billion in the third quarter of 2005 mainly arising from its North American operations. Rick Wagoner, Chief Executive Officer (CEO) of GM, announced that the company would eliminate 30,000 jobs and close down four of its 20 assembly plants in North America by the end of 2006. The management cited rising health care and labour costs as major reasons for the losses. But the United Auto Workers (UAW) felt that the vehicle design, product development and foreign competition were the major reasons for the company's poor performance. The opposing stands taken by the management and the labour union had stalled negotiations concerning reduction of health care costs, job cuts, outsourcing and sub-contracting. Finally on October 17 th 2005, GM announced its deal with the UAW, which agreed to reduce its health care costs for retirees by $15 billion and its annual employee health care expenses by $3 billion a year. Other than reducing costs, GM has also planned to increase its revenues by refocusing on sales, marketing and development of new models. It even planned to sell a majority of its stake in the profit making General Motors Acceptance Corporation. Despite this, in December 2005, S&P (Standard & Poor’s) slashed GM's credit rating to ‘junk', from BB to B, and expressed concern about the turnaround efforts. It also said that bankruptcy was a distinct possibility in the near future.
Pedagogical Objectives:
- To provide an insight on the historical perspective about the legacy costs at GM
- To discuss whether Rick Wagoner could turn around the company by bringing down the legacy costs while highlighting the possible effects of bankruptcy on its suppliers, customers, creditors andinvestors.
Keywords : General Motors; Rick Wagoner; US car industry; Toyota; Competition; Labour; Restructuring / Turnaround Strategies Case Study; Health care costs; Suppliers; Customers; Creditors; UAW (United Automobile Workers); Contracts; Negotiations; Alfred P Sloan Jr; Delphi
